TARIFF NEGOTIATIONS IN AGRICULTUREReduction methods
Making sense of ‘fixed percentage’ and ‘harmonizing’ cuts, the ‘Uruguay
Round’ approach, and Swiss formulas

A variety of methods are possible for negotiated tariff reductions. Some
are more common than others. Some are based on formulas. Even after a
method or combination of methods has been agreed, the final outcome for
each product can depend on bargaining between countries over the tariff
rates for those specific products.

> Back to the agriculture negotiations backgrounderThis briefing document explains current agricultural issues raised before and in the current negotiations. It has been prepared by the Information and Media Relations Division of the WTO Secretariat to help public understanding about the agriculture negotiations. It is not an official record of the negotiations.

This backgrounder explains some of the main methods that are based on
formulas, and compares them. Although it contains some algebra, it is
kept as simple as possible, with the aim of providing nothing more than
a taste of the various methods. (Considerably more technical detail and
a wider range of approaches can be found in WTO document
TN/MA/S/3/Rev.2,
“Formula Approaches to Tariff Negotiations” (revision), 11 April 2003,
prepared by the Secretariat for the non-agricultural market access
negotiations.

Single rate: Tariffs are cut to a single rate for all products.
Theoretically, this is the simplest outcome. In practice it is mainly
used in regional free trade agreements where the final tariff rate is
zero, or a low tariff, for trade within the group.

Flat-rate percentage reductions: the same percentage
reduction for all products, no matter whether the starting tariff is
high or low. For example, all tariffs cut by 25% in equal steps over
five years.

Uruguay Round approach: The 1986-94 Uruguay Round
negotiations in agriculture produced an agreement for developed
countries to cut tariffs on agricultural products by an average of
36% over six years (6% per year) with a minimum of 15% on each
product for the period.

Harmonizing reductions. These are designed principally to
make steeper cuts on higher tariffs, bringing the final tariffs
closer together (to “harmonize” the rates):

Different percentages for different tariff
bands. For example, no cuts for tariffs between 0 and 10%,
25% cuts for tariffs between 11% and 50%, 50% cuts for tariffs
above that, etc. A variation could include scrapping all tariffs
below 5% which are sometimes seen as a nuisance with little
benefit. These could be simple or average reductions within each
band.

Mathematical formulas designed to
make steeper cuts (i.e. higher percentage cuts) on higher tariffs.
One example is the so-called Swiss formula (more
below).

Other methods. There are a number of possibilities:

Different rates for different categories of
products. For example steeper cuts on processed products
than on raw materials. This is an attempt to deal with “tariff
escalation”, where countries protect their processing industries
by making imported raw materials cheap and imported processed
products expensive.

Negotiate a specified average percentage reduction in tariffs over a
specified number of years with the flexibility of a smaller minimum
reduction for individual products This
was the approach eventually adopted in the 1986–94 Uruguay Round
agriculture negotiations.

The approach has two features:

the flat-rate percentage reductions lead to gentler cuts on high
tariffs and a broader range of final tariffs than a harmonizing
method such as the Swiss formula (see
chart);

the combination of average and minimum reduction figures allows
countries the flexibility to vary their actual tariff reductions
on individual products (technically described as “tariff lines”) —
even if the average cut is 36%, some cuts will be more, some will
be less, and it is possible that no single tariff is actually
reduced by that amount.

The chart and table below show that where tariffs start high the
final rates are still quite high: a 36% reduction from 150% leaves a
final rate of 96% in year 6. Only when the starting tariffs are low
do the final tariffs have rates close to the Swiss formula (as in
the example): if the tariffs start at 10% and 25%, the rates in year
6 are 6.4% and 16%. The range of final tariffs, from 6.4% to 96%,
remains wide.

The 36% figure is one used in the Uruguay Round, although the
Uruguay Round approach could use different figures. However it was
for average tariff reductions — 36% over six years, for
developed countries, with a separate average target of 24% over 10
years for developing countries.

Starting tariff
150%

Starting tariff
125%

Starting tariff
100%

Starting tariff
75%

Starting tariff
50%

Starting tariff
25%

Starting tariff
10%

% cut

36

36

36

36

36

36

36

Year 0

150.00

125.00

100.00

75.00

50.00

25.00

10.00

Year 1

141.00

117.50

94.00

70.50

47.00

23.50

9.40

Year 2

132.00

110.00

88.00

66.00

44.00

22.00

8.80

Year 3

123.00

102.50

82.00

61.50

41.00

20.50

8.20

Year 4

114.00

95.00

76.00

57.00

38.00

19.00

7.60

Year 5

105.00

87.50

70.00

52.50

35.00

17.50

7.00

Year 6

96.00

80.00

64.00

48.00

32.00

16.00

6.40

Annual steps (%age points)

10.80

9.00

7.20

5.40

3.60

1.80

0.72

Comparison: Swiss formula, year 6, with coefficient=25

21.43

20.83

20.00

18.75

16.67

12.50

7.14

THE SWISS FORMULAA SPECIAL CASE OF A HARMONIZING FORMULA TARIFF CUT > back to top

Negotiate a much narrower gap between high and low tariffs
with a built-in maximum tariff Greatly
narrowing the gap between high and low tariffs is called harmonizing
the tariffs. The “Swiss formula” is a special kind of harmonizing
method. It uses a single mathematical formula to produce:

a narrow range of final tariff rates from a wide set of initial
tariffs

a maximum final rate, no matter how high the original tariff was.

Usually the required cuts are then divided into equal annual steps.

The forumula was proposed by Switzerland in the 1973–79 Tokyo Round
negotiations. But Switzerland opposes using this method in the
current agriculture negotiations; it prefers the Uruguay Round
approach, while Uruguay prefers the Swiss formula!

A key feature is a number, which is negotiated and plugged into the
formula. It is known as a “coefficient” (“A” in the formula
below). This also determines the maximum final tariff rate.

There are many other approaches to tariff cutting
formulas. See WTO document
TN/MA/S/3/Rev.2, “Formula Approaches to
Tariff Negotiations” (revision), 11 April 2003, prepared by the
Secretariat for the non-agricultural market access negotiations.